5 key things VCs look for when investing in a B2B tech startup

Amit Patni, Founder and Director, RAAY Global Investments Pvt Ltd, and Hot 100 jury member, tells us what he looks for when considering a startup for investment. By Satyaki Sarkar

Business and tech are Amit Patni’s two loves and the venture capitalist knows exactly what it takes to turn an enterprise into a billion dollar organisation. He pioneered the setup of the first Indian offshop facility of Patni Computers and under his leadership the company grew by leaps and bounds. In 2011 the company was sold for $1.5 billion and Amit reorganised the family office and ventured into several fields like real estate, asset management, etc.

Even today, Amit holds diverse roles in various organisations. He’s a Director at Waterfield Advisors Pvt Ltd, Co-Founder and Executive Partner at Elysium Investment Advisors LLP, and Founder and Director of RAAY Global Investments Pvt Ltd. He’s also the Co-Founder and Chairman at Nirvana Venture Advisors Pvt Ltd, a venture fund that invests in companies doing business in the Indian Internet and mobile segments. Tapping into his vast experience as an entrepreneur, Amit has invested in more than 50 startups during his career, and is a member of several angel networks and venture capitalist groups. Here he tells us what investors look for in a startup.

1. Effectiveness of the team
“Firstly, we look at the team running it. How solid is it? We find out about its members’ background in terms of education, experience, etc. It’s important to gauge the kind of fluidity the team has, and how well the members work together as a group. We usually prefer it when there is more than one co-founder, and try to look into the strengths and weaknesses of the team in terms of their enthusiasm, whether they believe in what they are doing, and in their product. It is important for the team to have the ability to take an idea forward and transform it into something more. Another important factor that we look for in a startup is the presence of humility, and the openness to accept advice. They must be able to accept feedback, take suggestions and listen to experienced professionals with an open mind, as and when needed.”

2. The idea behind the product
“The most important thing about any startup is the product it is selling, along with the business plan to do so. We carefully examine whether the idea behind it makes sense or not, whether it is feasible and will have utility for the consumer, the scalability of the product, market potential, as well as strategies being adopted by the team, and the kind of decisions being taken. We also take into consideration whether the product has the potential to grow into something big, or whether it will fade out. Who are the existing competitors? Or is it an entirely new idea, that too a disruptive one that will change the landscape completely?”

3. Is the investment amount justifiable?
“Another important factor that determines a potential investor’s decision is whether the amount of resources and funds required to develop it will have a positive ROI or not. Ultimately, the aim of any company is to earn a profit, and so it is very important to gauge how much money a company will require to become profitable and successful. A startup might have a brilliant team, and a great idea, but in spite of that if the amount of investment required is unjustifiable, and it simply keeps on sucking up money without tangible results, then there is not much reason for pursuing it as a profitable venture. There always needs to be a gross margin, and a measurable end goal in sight.”

4. Has beta testing been done?
“A common mistake many startups make nowadays is that they approach investors even before having tested the beta model of their product. Unless you run your product or idea through a dry run, you will not be able to know the risks and hindrances that it faces, and the probable measures and adjustments that might help overcome them. So in this case we also take into consideration the vision of the founder, and whether he has considered all the various risk factors that come into play, and figured out how to combat those. We don’t like to see a PowerPoint presentation, but rather we need to see that preliminary product testing has been done in the market, at the very least. If you have already raised money and resources, driven the product to completion, but haven’t tested it yet, then after the launch you might end up realising that the market needs a completely different product. However, at that point, there is no going back. So it becomes immensely important for a startup to do beta testing before it starts looking for investors.”

5. Local and global marketability
“Last but not the least, as an investor it’s also important for us to know what kind of scope the product has in the global market as well as the local market. Every startup begins somewhere, but it’s where it can get to, that defines its potential. We look at international competitors, consumers, and the like to know whether something similar has already been tried in that market, whether there already exists an established organisation that specialises in it, etc. If it’s something that has not been done before even in the global market, and there is a considerable demand for it, then a product has a very good chance to grow into something huge, completely surpassing its humble origins.” 

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